It came from Los Angeles

Pinkberry's tart-yet-sweet frozen yogurt has attracted investors, and inspired competitors, says Fortune's Matthew Boyle. Is it the next hot franchise?

By Matthew Boyle, Fortune writer

(FORTUNE Magazine) -- Launched in Los Angeles two years ago by a failed restaurateur and a former nightclub bouncer, Pinkberry could become the next hot franchise. This purveyor of tart-yet-sweet swirled yogurt is dubbed "Crackberry" by its fans (no, it's not made by Research in Motion). Devotees include celebrities Salma Hayek, Jerry Seinfeld, and Paris Hilton. It has also drawn the interest of Starbucks (Charts, Fortune 500) founder Howard Schultz, who, along with representatives from his venture capital firm Maveron, reportedly met with Pinkberry's founders last November. (Maveron declined to comment.)

"I've been practicing franchise law for 18 years, and this is one of a very few [concepts] that I have ever seen" on such a fast track, says Lori Lofstrom, Pinkberry's franchise lawyer.

pinkberry.03.jpg
Cool decor and pulsing music have drawn crowds to Pinkberry.
Buzz-0-Meter
Pinkberry's path from treat to trend.
January 2005
Pinkberry opens first location in West Hollywood.
August 2005
Mentioned by urban insider guide Daily Candy.
Summer 2006
Lines form; Paris Hilton, Salma Hayek flock.
September 2006
West Hollywood City Council holds public hearing due to neighbors' complaints about Pinkberry traffic.
October 2006
First Pinkberry opens in Manhattan.
November 2006
Pinkberry sues rival Kiwiberri for trademark infringement.
Hwang and Lee meet with Starbucks founder Howard Schultz.
January 2007
Competitor Red Mango announces plans to open in L.A.'s Westwood.
May 2007
Pinkberry tells Fortune it will open in London's Canary Wharf in July.

Why all the fuss? Pinkberry offers just two yogurt flavors, plain and green tea, sprinkled with the customer's choice of fresh berries, granola, even Fruity Pebbles cereal. (Some toppings are not officially on the menu, adding to the cult allure.) It's pricey stuff: While the average purchase is $5.50, a large green tea with three toppings costs nearly ten bucks.

Pinkberry won't discuss sales, but with upwards of 1,500 customers per location per day, one store could easily bring in $250,000 a month. (A typical unit for TCBY, the granddaddy of yogurt chains, does about $200,000, according to restaurant consultancy Technomic.) There are 21 Pinkberry locations in L.A. and New York, with plans for 50 by year-end. Co-founders Shelly Hwang, 33, and Young Lee, 43, say they turned a profit on their first store four months after opening it.

The founders also say they have received 3,000 requests from aspiring franchisees, who seek to pay a $40,000 upfront franchise fee for the rights to sell the treat - then kick in 7% of monthly sales (a 5% royalty fee, recently upped from 3%, plus 2% for marketing).

But Pinkberry's success so far defies industry trends - after all, the fro-yo craze came and went a decade ago. Per capita consumption of frozen yogurt declined from 3.5 pounds per person in 1991 to 1.3 in 2005, says the USDA Economic Research Service. And TCBY's sales declined 10% last year, estimates Technomic.

Hwang had two restaurant ventures go sour before she hired Lee in 2004 to design her next entrepreneurial foray - an English teahouse in a former West Hollywood tattoo parlor. That idea went nowhere, but Lee, inspired by yogurt-flavored gelato he had sampled years before in Vienna, proposed an upscale frozen yogurt concept with pulsing electronic music and a minimalist décor featuring $350 Philippe Starck chairs and $250 Le Klint lamps.

The formula has inspired imitators with names like Snowberry, Roseberry, Berri Good, and Kiwiberri. Some have come too close for comfort - last November, Pinkberry sued Kiwiberri and its owner, John Bae, for trademark infringement. (The case is now in mediation.)

One new entrant, however, might be a contender. Red Mango already operates 130 locations in South Korea, and it will make its L.A. debut in June. Lee's not concerned - "They're McDonald's, while we're a homemade burger" - but Dan Kim, Red Mango's U.S. president and a former investment banker, is already making waves, saying that his yogurt is "more authentic," a claim Lee vehemently denies.

Ultimately this yogurt war is just a sideshow, and the real issue is whether Korean-style yogurt will play in the heartland. "It's a total fad," says Richard Laermer, author of Trendspotting. (Laermer knows fads, having handled the PR for dot-com flameout Kozmo.com.)

For his part, Lee remains bullish: "This is a phenomenon." But then, so was boba, a tea drink that was a big hit in Korean cafés across the U.S. five years ago. You can't find it anywhere now.  Top of page